Manufacturing in U.S. Cools as Durables Orders Slump

Weakness in overseas markets and lower commodities prices have slowed demand for some companies such as Caterpillar Inc., showing manufacturing cooled as the first quarter drew to a close. Photographer: Victor J. Blue/Bloomberg

April 24 (Bloomberg) -- Demand for durable goods slumped in
March by the most in seven months, adding to signs manufacturing
in the U.S. cooled at the end of the first quarter.

Bookings for merchandise meant to last at least three years
fell 5.7 percent after a revised 4.3 percent gain the prior
month that was smaller than previously estimated, the Commerce
Department reported today in Washington. The less-volatile
category that excludes transportation equipment unexpectedly
dropped for a second month.

Companies such as Caterpillar Inc. are feeling the pinch as
customers rein in spending on equipment and inventories on
concern that across-the-board federal budget cuts and slower
growth overseas will restrain the world’s largest economy. At
the same time, gains in housing and autos are benefiting others,
including Ford Motor Co., supporting a continued expansion.

“The weakness that we see developing in China, the
recession in Europe and the unknown about the weight of the
fiscal restraint in the U.S. from the sequester, all those
increase uncertainty for business,” said Michael Carey, chief
economist at Credit Agricole CIB in New York and the second-best
durable-goods forecaster over the past two years, according to
data compiled by Bloomberg. Companies “are probably holding
back a bit.”

Most stocks rose, extending a rally in the Standard &
Poor’s 500 Index to a fourth day, as companies from Boeing Co.
to Apple Inc. reported earnings. The S&P 500 climbed less than
0.1 percent to 1,579.79 at the close in New York.

Investment Forecast

While the orders data indicated business investment cooled
in the first quarter after climbing at an 11.8 percent annual
rate in the final three months of 2012, it is “still in a
rising trend from a rare summer swoon last year,” Chris Rupkey,
chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd.
in New York, said in an e-mail to clients. Spending on equipment
and software dropped at a 2.6 percent rate in last year’s third
quarter, the last time concern about global growth mounted.

Overseas, early figures covering the second quarter showed
Europe is making little progress emerging from a recession.
German business confidence declined in April for a second month
after winter weather hindered the recovery in Europe’s largest
economy, figures from the Ifo Institute showed today in Munich.

The median forecast of 78 economists surveyed by Bloomberg
projected U.S. orders for durable goods would decline 3 percent
in March. Estimates ranged from a drop of 6 percent to a 1
percent gain. The Commerce Department revised the February gain
down from a previously reported 5.6 percent advance.

Broad Drop

Peoria, Illinois-based Caterpillar, the largest maker of
mining equipment, cut its 2013 forecast and “significantly”
lowered its outlook for demand from commodities producers. Sales
in 2013 will be $57 billion to $61 billion, compared with an
earlier forecast of $60 billion to $68 billion.

Capital expenditures by business remain weak, Michael
DeWalt, Caterpillar’s director of investor relations, said on an
April 22 earnings call. Dealers whittled down inventories, and
orders for mining equipment including trucks and bulldozers fell
in the first quarter.

Today’s report showed shipments of capital goods, a measure
that’s used in calculating gross domestic product, climbed 0.3
percent and were up at a 4.1 percent rate in the past three
months. They were up at a 5.1 percent pace in the three months
to December.

Growth Projections

Economists at Morgan Stanley and JPMorgan Chase & Co. in
New York lowered their first-quarter GDP tracking estimates
after today’s report. JPMorgan reduced its projection to 2.9
percent from 3.1 percent, while Morgan Stanley lowered its
forecast to 2.7 percent from 2.9 percent.

The Commerce Department will issue its initial estimate of
first-quarter growth on April 26.

Today’s figures showed bookings for commercial aircraft,
which are often volatile, declined 48.2 percent after surging
86.4 percent in February. Boeing Co., the Chicago-based
aerospace company, said it received orders for 39 aircraft in
March, down from 179 placed in February.

Boeing today reported profits that beat analysts’ estimates
as the company delivered more profitable 777s and 737s. Revenue
fell 2.5 percent to $18.9 billion because of a drop in 787
deliveries and the effect of budget cuts on Boeing’s defense
business. Boeing said its commercial and defense backlog rose to
a record $392 billion as it gained $20 billion of net orders
during the quarter.

Motor Vehicles

Orders for automobiles increased 0.2 percent last month
after a 4.7 percent jump in February, today’s durable goods
report showed. Cars and light trucks sold at a 15.2 million
annual rate in March after 15.3 million the prior month,
according to Ward’s Automotive Group data.

Dearborn, Michigan-based Ford, the second-largest U.S.
automaker, today also reported first-quarter profit that
exceeded estimates as the Fusion sedan bolstered record results
for its North American operations.

The company forecast it would build 800,000 vehicles in
North America and 390,000 in Europe during the current quarter.
That’s up 63,000 in North America and 21,000 in Europe from a
year earlier. Automakers record revenue when vehicles are
assembled and shipped to dealers.

Bookings for durables excluding transportation equipment
decreased 1.4 percent in March after a 1.7 percent drop the
prior month, today’s Commerce Department report showed. Those
orders were projected to rise 0.5 percent, according to the
Bloomberg survey median.

Orders for non-defense capital goods excluding aircraft, a
proxy for future business investment in equipment such as
computers and communications gear, rose 0.2 percent, capping a
16.7 percent annualized increase in the first three months of
the year. That compares with a 20.4 percent fourth-quarter gain
and indicates business spending will keep growing.